Since the re-election of Donald Trump as US president, geopolitical dynamics and changing attitudes towards sustainability are impacting investor behaviour and posing challenges for both corporates and individuals.
On his first day in office, Trump, once again, withdrew the US from the Paris Agreement on climate change. While some of his other campaign promises may be harder to execute, we have already seen a clear move away from environmental, social and governance (ESG) commitments.
The US Environmental Protection Agency, for example, recently announced it would review regulations on climate, air and water pollution in what could be the biggest deregulatory action in US history, but as yet, there is no real clarity over the changes and their potential impact.
However, total policy reversal is unlikely, particularly when looking at the Inflation Reduction Act (IRA) introduced under President Joe Biden in 2022 which intended to increase clean energy investment.
Despite Trump’s campaign pledge to terminate the program, the IRA has broad bipartisan support, with a significant amount of IRA funding going towards projects in Republican-led districts. Therefore, instead of completely dismantling it, it’s likely the Trump administration’s efforts will be more focused on adjusting the IRA.
Trump’s “drill, baby, drill” mantra may also face practical limitations, as the current level of oil prices mean increased production may not be economically viable for many oil companies.
As such, we believe businesses, and investors, need to focus on the reality rather than the current rhetoric.
Global commitment despite uncertainty
In Europe, the commitment to reach net zero by 2050 remains strong. Here, the biggest game changer in recent years has not been the new US administration but the Russia-Ukraine war, which has brought the question of energy security into the spotlight. The conflict has highlighted just how closely the energy transition and energy independence are linked.
Elsewhere, China remains the world’s largest polluter but has already met some of its net zero commitments such as raising wind and solar capacity to 1,200 gigawatts by 2030. Meanwhile, Saudi Arabia, one of the world’s biggest oil producers, is looking ahead to life after fossil fuels and what that transformation will require.
The key theme throughout these developments is uncertainty – largely due to the changes in the US’ position towards climate change, supporting and financing the transition to net zero and resetting its relationship with the rest of the world. US tariffs will disrupt the global trade system, which has implications for sustainability through its strain on supply chains. As a result, it may be more difficult for businesses to source materials and finance longer-term projects that will help make their businesses more sustainable.
Renewables driving the transition
We continue, however, to see good progress in the transition to net zero. A recent report from the International Energy Agency suggested that more than one in four cars sold globally in 2025 will be electric.
The cost of renewable energy is falling relative to oil and gas on a long-term view, while demand for electricity is rising – driven by the ongoing development of China and the growth in artificial intelligence and data centres. Renewable energy will also provide greater energy security for emerging markets.
Alongside the need for greater power generation – much of which will come from renewables – there are also new investments going into the energy grid and power transmission that will benefit all industries and consumers – and the new US administration will not derail that.
Disclosure and accountability
There has also been a strong pushback against diversity, equity and inclusion (DEI) initiatives, driven by US government rhetoric. While some corporates are changing the way they talk about DEI, many are reframing it as a commitment to sourcing the best talent available, regardless of whether that individual fits into typical DEI standards. We are more likely to see voluntary disclosure as the norm rather than a federal law and believe companies will continue to report sustainability data more broadly, as it is increasingly core to their business and intertwined with profits.
There is also a growing focus on measuring sustainability through materiality, as companies seek to demonstrate the real-world impact of their policies and investors’ demand for greater accountability.
Investors have a role to play – via dialogue, engagement and stewardship – in influencing company and issuer behaviour. Channelling capital into companies with strong sustainability credentials or into instruments like green bonds is one of the most effective tools they have.
Green investing remains on track
Despite a sharp drop in US green bond issuance this year, the global market remains strong. This is perhaps an opportunity for investors to look at alternative geographies such as Latin America and Europe. We expect the green bond market to continue its strong growth and believe the asset class will continue to offer investors an opportunity to invest in the green transition as well as access fixed income markets.
An increasing number of risks – climate change, biodiversity, social issues and more – will continue to materialise, making it critical to consider these when investing. We believe that incorporating sustainability considerations can help make better investment decisions.
We see a robust pipeline of opportunities for investors as the transition to net zero progresses, including new technologies and solutions that help communities, businesses and economies face up to the risks and challenges.
Ultimately, security is inseparable from sustainability. We believe that, despite the uncertainty surrounding policies and politics, particularly from the new US administration, the direction of travel remains the same – the transition to a net zero economy is underway, even if the speed may ebb and flow at times.
Chris Iggo, CIO at AXA Investment Managers
